The tsunami that struck Japan March 11, 2011, and the subsequent nuclear emergency at Fukushima Daiichi nuclear power plant offered the world a dramatic lesson in how vulnerable complex manufacturing supply chains can be. But supply chain risks don't only come from natural emergencies. What if a country could unleash a supply chain storm by restricting access to critical elements for a host of applications ranging from refining oil to polishing glass to building tablet computers and M1A2 Abrams tanks?
Critics say that is just what China did in 2010 when it started cutting back on exports of rare earths and even imposed a brief, unofficial embargo. Chinese officials said they were taking this step in order to improve environmental conditions at Chinese mines and to shut down illegal operations. Some analysts, though, believe China's newfound concern about the environment is a ruse to control prices of rare earths and to move up the value chain, from simply mining the minerals to processing them and then producing products.
For many minerals, the Chinese move would have been an inconvenience. But since the early 1990s, China has virtually cornered the market on rare earths, the collective label for 17 minerals that are not only critical to many emerging commercial applications such as wind turbines, but which are employed in a host of national defense products as well. For the past two decades, China has dominated the production and processing of rare earths, driving U.S. producers out of the market.
It didn't take long for the effects of the Chinese announcement to impact the market. For example, one rare earth, dysprosium, cost about $250 per kilogram in 2004, notes Chris Berry, founder of House Mountain Partners. In the first seven months of 2011, the price of dysprosium shot up to $2,500 per kilogram. Even now, this rare earth still costs about $1,400.
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| At Molycorp's innovative paste tailings facility, most of the water from mine tailings is removed for recycling, and creates tailings with the consistency of "paste," which allows for environmentally superior, long-term storage. |
On March 13, President Obama raised the profile of the rare earths dispute when he announced the United States would be joining the European Union and Japan in bringing a complaint against China to the World Trade Organization. Noting that rare earths are used in products ranging from hybrid cars to cell phones, Obama says U.S. manufacturers need to have access to rare earths to produce those products in the United States. China's current policies, he says, "are preventing that from happening."
"Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing," says Obama. "We've got to take control of our energy future, and we can't let that energy industry take root in some other country because they were allowed to break the rules."
EU Trade Commissioner Karel De Gucht charges that China had not changed its policies despite a previous WTO ruling in January that China was not providing required access to raw materials.
"China imposes a set of export restrictions, including export quotas, export duties and additional requirements that limit access to these products for companies outside China," according to an EU statement. "These measures significantly distort the market and favor Chinese industry at the expense of companies and consumers in the EU."
